Financial Truth

New Home Sales, The 10-Year Yield & Kobe Bryant

In 2018 I wrote:

“I expect to see a negative 3% to 1% growth in new home sales in 2019. The builders could discount to add some more business. I expect they will instead hope that lower mortgage rates will get them back on track for slow and steady growth instead of decreasing their margins.”

Not only did lower rates do their thing, but we also have a massive beat for 2019 in the new home sales market. Sales are up 10% year to date. In fact, sales are up so much in 2019 that it is a prime factor why I reduced my forecast a tad for 2020.

The most crucial data line set today was that the new home revisions held up and 3-month sales trends are at 698,666. I can’t stress how important it is to hold up these higher sales data line prints. Some people are disappointed that sale revisions were all negative. However, one thing that I have tried to stress during this housing V shape recovery is not to over hype the data. Slow and steady wins this race. The conviction that I have against the American bears is that same I have against the low housing inventory thesis. That is how much I don’t believe in the low inventory housing thesis. Even though inventory grew from 5.5 months to 5.7 months, it still all looks good to me. The new home sales market gets in trouble when monthly supply data gets over 6.5 months. We spent an entire year getting rid of the Excess Housing Supply to get single-family starts back to the flat. We are not dealing with a low inventory housing crisis because demand is so strong.

3-month monthly supply average running at 5.56 months.

The most essential housing and probably economic chart we have today in America looks a lot better now than it did 1 year ago.

Sales of new single‐family houses in December 2019 were at a seasonally adjusted annual rate of 694,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 0.4 percent (±15.1 percent)* below the revised November rate of 697,000, but is 23.0 percent (±20.0 percent) above the December 2018 estimate of 564,000. An estimated 681,000 new homes were sold in 2019. This is 10.3 percent (±6.4 percent) above the 2018 figure of 617,000.

Sales Price

The median sales price of new houses sold in December 2019 was $331,400. The average sales price was $384,500.

For Sale Inventory and Months’ Supply

The seasonally‐adjusted estimate of new houses for sale at the end of December was 327,000. This represents a supply of 5.7 months at the current sales rate.

After the inverted yield curve episode of last year, I had no problems saying this can be a bullish economic event.

However, since that event, even with markets hitting all-time highs, I focus on not making this a higher rate of growth story until we can close above 1.94% and see follow-through bond selling. Remember, let the market come to you; don’t go ahead of it in terms of economic growth. I stressed this a lot in my 2020 forecast article

“For many months on social media sites, I have talked about how important it is for the bond market to close above 1.94% and get follow-through selling. A yield above 1.94% would mean that the bond market has more confidence that we will have higher growth next year. Until then, I would be skeptical of any story that predicts a higher rate of growth for 2020.”

“Any stock market sell-off, correction, or near-bear market can drive money into bonds short term. With many headline-driven risks in play next year, don’t ignore the lower end of my bond market channel just yet. If growth picks up, even just a tad next year, then I don’t expect we will stay under the 1.60% level too long if we see headline risk. This has been the reality in this record-breaking expansion; short-term headline-driven events take us below 1.60% on the 10-year yield. However, we don’t stay there too long because we were never going into recession. Slowing growth took yields lower, but slower growth doesn’t necessarily mean an imminent recession. The failure to understand this has been a plague for the American Recession Bears.”

If we crack below 1.60% again, making this the 4th time in this record expansion and you go all recession on us, that is on you. I can’t help you guys if you don’t want to be improved. On twitter, I am trying desperately to show you how hard it is to have a Calendar recession. When LEI isn’t in a clear downtrend when housing starts is at cycle highs when we have 6,800,000 job openings, and the St. Louis Financial Stress Index is at an all-time low. Let these data lines get worse first before you go recession on us.

Kobe Bryant:

As someone who has played basketball here in So Cal since I was 5. Who played high school basketball, was a high school basketball coach, and is only 3 years older than Kobe. Kobe Bryant was basketball for us, and for the kids, I coached as well. I had to admit yesterday was one of the most emotionally draining days of my life. Watching the Spurs bench crying and young NBA players in pain really got to me from a basketball player perspective.

One thing that I always take with me every day is Kobe’s work ethic and utter passion for never losing. Every day I wake up very early and go to bed late and make sure I don’t miss any data point that can impact my forecast. Every day I get up with the passion for destroying as many American bears as I can while I am still alive. Every day I can thank Kobe Bryant for this because his desire to never want to lose and destroy his opponents is the same attitude I take to economics every day. Thank you, Kobe, for everything.

Logan Mohtashami is a financial writer and blogger covering the U.S. economy with a specialization in the housing market. Logan Mohtashami is a senior loan officer at AMC Lending Group, which has been providing mortgage services for California residents since 1987. Logan also tracks all economic data daily on his Facebook page https://www.facebook.com/Logan.Mohtashami and is a contributor for HousingWire.